Valor Payroll Solutions Blog

Tips for a Successful Payroll Transition

Posted: April 17, 2023

As of 2022, 64% of people in the U.S. live paycheck to paycheck. Thus, employees expect their paychecks on time every payday. As an employer, you’re responsible for this duty.

However, you might be considering switching to a different payroll processor. After all, switching is smart if you’re unhappy with your current provider.

But you’ll need to learn how to have a successful payroll transition. Here are some tips to help you accomplish this goal.

Start by Gathering Data

Transitioning from one provider to another requires numerous steps, beginning with gathering the required information.

First, you must gather the basic company information so that you can begin setting up your new payroll account. This includes

The company’s legal name
The company DBA, if applicable
The FEIN
State tax IDs – withholding, unemployment, local taxes, PFML, etc
Tax payment frequencies for federal and state withholding
The pay schedule, including pay period, begin and end dates, and pay dates
All pay codes and deductions that you currently utilize

Next, gather your employee data, starting with their names and Social Security numbers. You’ll also need to gather their addresses, bank information, W-4 withholdings, and state withholding details. If your employees have any deductions coming out of their checks you will need to gather this information as well, including garnishments or child support orders.

Next, you need to gather the payroll data. This is usually accomplished by creating reports in your existing system. The reports should contain the gross to net calculations for each pay date, for each employee, and also include employer tax liabilities. Each system calls its payroll reports by different names, but some common examples are a payroll register, payroll history report, or payroll detail report.

You should also run reports to show year-to-date tax liabilities and payments. This will ensure that nothing falls through the cracks during the transition. If the existing provider completed a full quarter, you must also gather the previously filed payroll tax returns.

If you have any internal policies, such as PTO or vacation, you will also want to accumulate these and provide them to your new payroll provider so that they can set up the accruals in your new system.

Set a Reasonable Timeline

The provider will tell you the steps you must complete and how long they’ll take. The implementation timeline can vary greatly depending on how many employees you have and how robust the payroll software is. Smaller implementations can sometimes be completed in a few business days, whereas larger implementations can take several months.

The important thing to remember is to discuss a timeline with your new provider so that expectations are clear for both parties.

Determine the Scope of the Project

Delegating duties to different people will help you get through this process smoothly. It also helps you avoid disruptions in the payroll process.

You could create a team to handle the process and determine the project scope. Then, you can decide who should handle each task required for the payroll transition process. Work with your new provider to see what pieces of the implementation they are happy to take on, versus the tasks that they leave up to the client to complete.

Input the Data in the New System

Your new provider will provide a system for your payroll. However, depending on the services your new provider offers, your job may require inputting the information. Make sure you understand who will be responsible for this task and that you have ample resources internally if this is something your service provider requires you to do.

Reconcile the Data

The next step is to verify the data, and you do this through payroll reconciliation. Once you have all of your employee and payroll data input into your new system, you should run reports to determine that all amounts match. This includes, but is not limited to:

Gross earnings by employee, by pay date
Net pay amounts
Employee taxes
Employer taxes
Deductions and garnishments

Reports should be run in your new and your old system to compare totals and make any necessary adjustments. Failure to complete this step can have dire consequences down the road!

Run a Parallel Payroll

Most companies transitioning to a new payroll provider benefit from running a parallel payroll test. This test runs payroll through the old and new systems, and you compare the outcomes.

For example, do the payroll reports match? Was everything calculated correctly? You’ll be ready to go live if everything matches.

What Is A Payroll Transition? Now You Know

What is a payroll transition? It simply means you hire a new payroll processor to handle your company’s payroll services. You can ensure a smooth transition by following these tips.